What is an interbank rate
An interbank rate is the interest rate at which banks lend money to each other, usually overnight, and the published version of it serves as a benchmark for loans, deposits and derivatives.
The main benchmarks:
| Benchmark | Currency | Basis | Publisher |
|---|---|---|---|
| SOFR (Secured Overnight Financing Rate) | US dollar | Actual overnight repo trades secured by US Treasuries | Federal Reserve Bank of New York |
| €STR (euro short-term rate) | Euro | Actual overnight unsecured borrowing by banks | European Central Bank |
| KIBOR (Karachi Interbank Offered Rate) | Pakistani rupee | Rates quoted by contributing banks | State Bank of Pakistan |
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Formal definition and edge cases
- Transaction-based vs quoted. SOFR and €STR are calculated from real trades, which makes them harder to manipulate. KIBOR is an "offered rate". This means it is a poll of the rates banks say they would lend at, like the old LIBOR that SOFR replaced.
- Secured vs unsecured. SOFR is backed by collateral, so it carries almost no counterparty credit risk. €STR and KIBOR are unsecured, so they also reflect how much banks trust each other.
- Overnight vs term. SOFR and €STR are overnight rates published on the next business day. Loans that need a rate for a longer period use either compounding "in arrears" or a forward-looking term rate. KIBOR is published directly for several tenors.
- Spikes. SOFR can jump around month-end and quarter-end when cash is scarce in the repo market. A spike does not always mean a change in policy.
- Link to policy. Interbank rates move close to the central bank's policy rate. A recent example from the SBP: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC). After a decision like this, KIBOR usually adjusts to the new level.
Worked example (hypothetical, no real figures)
A bank lends an amount P overnight at benchmark rate r:
Interest = P × r × (days ÷ year basis)
The year basis is a fixed day-count convention set for each currency.
A business loan in Pakistan is often priced as KIBOR + margin. The margin is quoted in basis points and stays fixed. The KIBOR part is reset on each repricing date. If KIBOR rises after a policy-rate increase, the borrower's rate rises by the same amount at the next reset.
Where you see interbank rates
- News and central bank statements. Monetary policy decisions, money-market reports, and SBP data on KIBOR.
- Loan and bond documents. Floating-rate loans, sukuk and bonds name the benchmark and the spread.
- Trading platforms. Overnight financing (swap) on forex and CFD positions is built from the interest-rate difference between the two currencies, and interbank rates feed into it. See swap fees. Leveraged CFD and forex positions can lose money fast, and swap charges add to the cost of holding them.
- FX pricing. Forward points and covered interest parity come from the rate gap between currencies.
Related terms
- Basis point
- Credit spread
- Collateral
- Credit crunch
- Fundamental analysis
- Saving, investing, loans
- Trading glossary
Frequent questions
What does interbank rate mean in simple words?
It is the price banks pay to borrow from each other for a short time. The published figure is used as a reference rate for other loans.
What is the SOFR rate?
SOFR is the US dollar overnight rate calculated from repo trades secured by US Treasuries. It replaced USD LIBOR as the main dollar benchmark.
How is €STR different from SOFR?
€STR covers unsecured euro borrowing. SOFR covers secured dollar borrowing. Both are calculated from real transactions.
Is KIBOR the same as the SBP policy rate?
No. The policy rate is set by the SBP. KIBOR is a market benchmark based on bank quotes, and it usually stays close to the policy rate.
Do interbank rates affect my trading costs?
They feed into the overnight swap on forex and CFD positions. Check the current swap for each instrument in your platform's contract specification before you hold a position overnight.